Today’s economy is fueled by cash infusions, financed by government and consumer debt. Call me old-fashioned, but that makes me nervous.
Consumer spending, we are told, is now what drives our economy. But it’s fueled by high levels of consumer debt. Today, household debt is at an unprecedented $42,000 per person. In other words, we are up to our ears in mortgages and credit purchases.
Yet the economy needs those cash infusions from every one of us, so we are told to keep spending. Spend more – get that new car, bigger house or latest gadget. Likewise, if the government wants something new and expensive, it doesn’t have to pay for it. Just add it to the debt.
So we increase government spending by increasing the national debt, and we increase consumer spending by increasing consumer debt. If we aren’t getting enough consumer spending, we spur it even more by giving consumers a tax cut, paid for by – you guessed it – the national debt.
It seems risky to me, but some experts see it differently. Cutting taxes, they say, strengthens the economy and in the long run increases government revenues. With lower taxes, people will have more money to spend. The cash infusion will grow the economy, a good thing for all of us, and increase tax revenues, a good thing for the national debt.
Has that theory been supported by the evidence? So far, tax revenues have gone down, then started back up, but they have not yet fully recovered. They might someday, but according to Congressional Budget Office figures, so far, revenues are lower. But despite lower revenues, federal spending increased at 7 percent per year since the tax cuts, when throughout the nineties it was at 3 percent. We have an economy running strongly on new cash infusions, but our supply of cash is not endless, and our debts – federal and individual – are financing the spending spree.
My parents taught me that economic success takes a long time, and it is earned through hard work, personal initiative, education and job skills. They even taught me that it is wiser to save some of your money, rather than spend it all.
My dad was born in 1930, on the day the banks closed in his hometown of Louisville, Kentucky. Then the steel mills closed, and the Probst family was in for hard times. Grandpa tried to sell candy from the trunk of his car to make ends meet. Grandma put cardboard into the kids’ shoes when the soles wore through. Maybe that’s why I am so suspicious of economic theories that seem too good to be true.
Maybe the experts are right, but I’ll put my money on real economic fundamentals. Cash infusions are powerful and they have their place, but monetary supply will never trump natural resources, physical infrastructure or human infrastructure. If they strike gold in Brush Prairie or find coltan in Camas, our economy will be strong for many years. If our roads and ports and electric grid aren’t up to snuff, our economy will suffer. Perhaps most fundamentally of all, if our people themselves are among the most skilled, best educated, and most reliable workers in the world, then our economy is bound to thrive.
So when the federal government puts us into debt for short-term cash infusions, and then cuts workforce development and education, it makes me nervous. Spending money we don’t have is a lot of fun while we are doing it, but it can’t last. It’s time to get back to the basics, and focus on the fundamentals.
My own instincts say debt-and-spend is a recipe for short-term success and long-term failure. I’d rather see us keep taxes down and keep government spending down. I’d rather see us investing in our long-term economic leadership with a skills-driven strategy. I’d rather build our economy by building a skilled and educated workforce that is the envy of the world.
For the taxpayer, I think that’s a much safer bet.
